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July 07, 2004

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omadeon

The more I read your stuff, Mr. Spivack, the more I tend to agree with you.

As regards democratic corporations, there are examples of cooperative corporations, which are very succesful, even on a global scale, such as Mondragon:
http://omadeon.wordpress.com/2007/12/21/mcc/

It is unfortunate that I discovered your views and your articles so late (3 years later, in fact)! However, it is amusing that in the last few months I had been arguing along the same lines as you in my own blog, in Greek; as well as in a new blog, which is humourous science fiction about the year 2107, where (as the story goes) the dominant form of economic and social organisation is "People's corporations", but lonesome rich enterpreneurs and capitalists are also free to venture and compete with these "people's corporations", to the benefit of both types of organisation. Unfortunately, till now, this blog is in Greek, but you just gave me a strong incentive to translate it into English (or at least start new posts also in English):
http://futurepolitics.wordpress.com

Best regards from the... future! :)


Nova Spivack

Thanks Prakash for the very informative and interesting comment!

Nova

Prakash

Hi Nova,

Good site that you got here. This debate of "reforming" capitalism has come into light only after the collapse of marxism. Till then, all those who supported any form of social welfare were called either quasi-marxists or something like that.

The interesting thing is that "capitalism" was never born properly in the first place. The original proponents of, indeed the originators of the term "laissez faire", the french physiocrats, were in favour of unrestricted trade and enterprise, COUPLED WITH A LEVY ON THE USE OF LAND AND NATURAL RESOURCES. (In terms of classical economics all of it was land)

Because natural resources were scarce (as in more demand than supply at zero price) this levy could be used to fund governmental activities - law and order, security provision, etc. and any excess could be redistributed amongst the people as a divided.

www.progress.org/dividend

It just means that all earth's rent is held in common, while people can still USE and restrict use of land as they wanted i.e. all of us are the "earth's shareholders".

This policy is quite unknown today, but it has had an impressive list of backers.

Adam Smith, David ricardo, Thomas paine, Thomas jeferson, Mark Twain, Herbert Spencer, Henry George (perhaps its greatest proponent), Winston Churchill, Albert Jay Nock, Henry Ford.

For more information you could look at these sites

www.progress.org/geonomy

www.henrygeorge.org

http://members.aol.com/_ht_a/tma68/geolib.htm

What you fear is not corporations as much as exploitation. When the people of the world own land in common, there would be no chance for exploitation because any resource that a corporation uses, it will have to pay rent to the public.

You consider that having no choice but to work for a corporation as coercion. Now in your idea, there is a commons today. Why can't exploited people use the commons to benefit themselves? It is because there is a commons, but it is GOVERNMENT property, not PUBLIC PROPERTY.
You are restricted from it as much as I am.

The relation of exploitation and restriction from access to land has been dealt with in detail in Chapter 3 of Albert Jay Nock's "Our enemy, the state".


Nova Spivack

I would like to add one more point. Those who advocate "privatization" as the solution to all the problems in society should also address the question of whether there is anything that should not be privatized. In particular, where do we draw the line? Should government be privatized for example? If in fact all or most functions of government become privatized and thus owned and managed by corporations, at some point the question of whether corporations should be democracies becomes very important. If our entire federal government was privatized then we would really have a situation where either the people would no longer be represented, or the governance of corporations would need to change in order to provide representation to stakeholders, not just shareholders. A corporation is focused on serving shareholders. A democracy is focused on serving stakeholders. In a democracy the citizens are the stakeholders, and also the "shareholders." In a corporation the shareholders and stakeholders are usually not the same set of people. If we assume that privatization will continue as a major trend then at some point my suggestion that "corporations are the new governments" will become quite obvious. Then the question of how to merge democratic process and corporate governance will become a key issue for society.

Nova Spivack

Stephen, I am definitely not advocating Marxism! When I suggest that employees might be given a vote I am not suggesting that they necessarily get equity. I view voting rights and ownership right to be two separate issues. As an entrepreneur myself, I do have mixed feelings about giving voting rights to employees or contracters since their interests may not be aligned with those of the business. But on the other hand, without some form of representation those who do the work may get taken advantage of unfairly by big corporate management. Of course they have the right to quit or to unionize, but these are extreme maneuvers. Why not design a corporate governance structure that doesn't push things to the extremes of either exploitation or rebellion? Why not come up with a more sustainable structure -- one that is more likely to maximize the happines of all stakeholders as opposed to just the shareholders? I agree with you that the marketplace is a wonderful thing and private property can solve a number of "Tragedy of the Commons" problems -- but there are many things that I would not want to see privatized (the oceans, the forests, public parks, the air, the water, the topsoil, etc.). Your proposal would privatize everything. That would mean ultimately that we would have to pay to drink water, to breathe the air, to walk on the ground, to take swim in the ocean, etc. And who would we pay? The big corporations that owned everything. Sounds like a vision of hell to me. That's just not a world I would want to live in.

Stephen Bronstein

Oh, and for an excellent analysis of the importance of private property rights to ending third world poverty, I highly recommend Hernando DeSoto's The Mystery of Capital:

http://www.amazon.com/exec/obidos/ASIN/0465016154/wwwbronsteior-20

Stephen Bronstein

Nova,

This is ultimately a philsophical difference of opinion that we aren't going to resolve with a few comments back and forth. But I did get the feeling from your response that you didn't actually follow the links that I had included. Which is your right of course. But nonetheless:

1) The situation with global fisheries *is* a result of tragedy of the commons, it is a *government* failure, and it can be solved, by government, through the institution of private property rights. The Mackinac article talks about a few places where this has been done to great success, without having to label all of the fish (miraculously, I know).

I challenge you to show me a situation where there are private property rights (ie no commons), no government price cap or quota, and yet there is still a shortage. It just doesn't happen.

2) The solution to too much regulation is...less regulation. I'm not advocating getting rid of all regulation, but nonetheless, much of it does not serve any practical purpose, the goal of the regulation could generally be better accomplished through market-based incentives. For example, out here in CA we pay more for gas because of the special formulation...if the govt just mandated certain pollution output characteristics, industry could accomplish that for a lower price. This would be a win for consumers, who would see lower prices, and a win for society, which would get more bang for its buck in pollution-elimination.

And besides, what I said was that bureaucracies and interest groups are out of control. I firmly believe, as does Jonathan Rauch, that every organization reaches a size where it becomes ineffective. When this happens with corporations, they go out of business, as happens all the time. When this happens with government bureaucracies...they continue to grow.

3) Democratic corporations...think about this as an entrepreneur. You already have clear incentives to treat your employees well - companies where employees are happy to better, this is beyond dispute. But then a few years after working 100 hour weeks, you open up a factory. Now you have hundreds or thousands of employees, all of whom should suddenly gain a large part of the equity of the company just because they are employees? This does not create the proper incentive for you to work hard in the first place. And the reality is that it would make the corporation less likely to change - like the state owned companies I mentioned above which you claim not to be in favor of.

(and as an addendum, what if the factory is just a contractor, as is more likely today? why should this technical difference in your relationship mean that the employees are no longer entitled to your hard earned equity?)

Corporate evolution happens all the time. To the extent that you want to make corporations evolve in ways that are better for communities and better for the environment, then yes - give them the financial incentives to do so. But we aren't disagreeing at this point - the best way to give them proper financial incentives, rather than just outright regulating, is through market mechanisms (like the acid rain law, for example, which has been extremely effective).

4) Coercion. There are of course cases where people have had no choice but to work for a particular company, have had their pensions tied up, etc. This was particularly true during the industrial revolution, epitomized by the factory man, and is increasingly less common now. But there is *no* case where government was not coercive, and the vast majority of transactions between people and corporations - whether as employees, customers, suppliers, or residents, do not involve any sort of coercion.

5) Jurisdiction - if you mean that because San Francisco raises the minimum wage to $8.50, my friend who is expanding his new retail business decides to open up his second shop in San Jose instead of in SF, and he is thus able to 'route around' local jurisdiction, than yes, you are correct. But this is as it should be, at least in my book - if San Jose is willing to allow its workers to take a job that pays merely $5.50, then growing firms should be able to move to that location to take advantage of the cheaper labor.

The fact remains that in situations like the GE/Honeywell merger, giant MNCs find themselves *more* restricted by their global nature, where they are subject to multiple jurisdictions, than if they were only located in the US and subject to just one jurisdiction.

6) The Commons - The concept of the commons is better than the reality. Do I like having public parks and sidewalks? Yes, of course. But I hate the fact that when I walk through the park and along the street, I am zigzagging around homeless people or, at times (particularly in Golden Gate Park) am almost assaulted by the quasi-homeless 20-something upper-middle-class kids who use the park as their home while they are rebelling against the system. To me, this alone is a failure of the commons, although one that I am willing (and indeed choose) to live with because it's an important part of the freedom of our society.

But a bigger failure of the commons is, for example, highway congestion (which wouldn't exist if there were congestion-based tolls), or a natural resource shortage such as the issue with global fisheries. And the list goes on and on.

Markets have been with us for hundreds of years. The ability of markets to find a clearing price and avoid shortages or over-supply is well documented and beyond dispute. It is not idealism to suggest that markets are the best solution to shortages. It is realism.

What is idealism is to suggest that the government can better and more efficiently allocate resources than the market. This line of thinking, which started with Marx but obviously has taken a number of different forms since, is relatively new, and has not seen all that much success. Nonetheless, its proponents continue to believe that top-down action from a small elite can solve problems more effectively than billions of individuals making their own cost-benefit decisions. Now this is idealism.

Laura Jennings

See:

Study: Sea Protection Costs Less Than Fish Subsidies

http://www.reuters.com/newsArticle.jhtml?type=scienceNews&storyID=5419204

Nova Spivack

Stephen, I've replied to some of your points in a new comment at the end of the revised version of my original post. But anyway, I'll reply briefly here...

1. Democracy is broken because our present system wasn't designed for such large populations. The effect that an individual citizen can have is simply lower now than ever before because politicians cannot interact personally with so many people. In other words, people are more like numbers than they were in the past. It is harder for an individual to directly impact political decisions than before. In the past, when the population was much smaller, it was practical to interact on a personal level with your Representative and Congressman. Today you can send a letter and possibly get a formletter back, if anything!

2. Government regulations may be out of control, but without them where would we be? Would corporations not then plunder everything, dump their waste, release harmful products, lie to investors and customers, etc.?

3. Your suggestion to solve the Tragedy of the Commons by making everything into private property is a scary vision -- not a world I want to live in. Do you really want to have to pay to sail your boat around the coastline, or to take a walk in the local park, or to collect rainwater, or breathe fresh air??? Where does "private property" end -- would there be anything not private in your world? Personally a world with public Commons is nicer -- we just have to find a way to protect the Commons. That is one of the jobs of government. Corporations need to be reigned in to accomplish this. Rather than regulate, I say change the force of natural selection such that investors naturally favor corporations that are more responsible.

4. Your claim that markets don't produce shortages is simply false. Again, look at the case of global fisheries, which are now so seriously declined that in many places there are simply no fish left to catch. Only by making all fish into pre-owned private property could your approach solve this problem. I don't think that it would be feasible to tag every fish with the brand of the "ranch" that owns it, and charge fishermen to catch them, do you?

5. You state that "Democratic corporations" have been with us for decades, and you point out State Owned corporations as an example. I am not advocating that -- I don't think socialism works either. I am suggesting that privately owned corporations should be more democratic, and should be more tied to the effects they have on society and the biosphere.

6. There are so many legal cases that contradict your naiive belief that "there is no element of coercion" in corporations. Employees and local communities are often "coerced" because they lack better options, their pensions are tied up, their families and economies are dependent, and even because of strong-arm tactics that are sometimes employed by corporations to force their will on others. Just because people are free in principle does not make them free in practice. Let's deal with the real world here, shall we?

7. You are correct that global corporations are within multiple jurisdications. What I mean is that they are not solely within any one jurisdiction. This means that it becomes difficult for any one jurisdiction to change the organization outside of its jurisdiction. Global corporations are like amoebas that can shift their shape as needed -- to reallocate around local legislation. That makes it difficult for legislators or regulators in any one jurisdication to be effective. The organization can simply route around those local bottlenecks, take its business elsewhere, etc. This makes such organizations difficult if not impossible to regulate.

Stephen Bronstein

To the extent that democracy is broken, this is because the bureaucracies and interest groups have spiraled out of control. In every other respect - voter apathy, business power, etc., not much has changed in at least the past hundred years.

http://www.amazon.com/exec/obidos/tg/detail/-/1891620495/qid=1089262240/sr=8-1/ref=sr_8_xs_ap_i1_xgl14/103-0151903-6155069?v=glance&s=books&n=507846

And to the extent that Capitalism is 'broken', you're fingering the wrong culprit - Tragedy of the Commons is a government failure, not a corporate failure. Institute private property rights and sit back - fisheries spring back to life.

http://www.mackinac.org/article.asp?ID=5735

Decades of rampant capitalism have shown that we aren't ever going to run out of natural resources, unless we put the government in charge - wherever there is truly a shortage, a government mandated quota or price ceiling is invariably the cause. Markets may create bubbles, but they don't create shortages.

http://home.hiwaay.net/~craigg/g4c/economist-Doom.htm

'Democratic' corporations have been with us for decades as well, they are generally called State Owned Companies. Ironically, what distinguishes them from their privately-financed peers is their inability to evolve anywhere near as quickly.

The reason corporations don't need to be democratic is because there's no element of coercion. Government, no matter how democratic, still coerces its citizens, to pay taxes, obey the laws, etc. This is not the case with capitalism - you are always *free* to find a new job, buy a different product or service, etc.

Lastly, the statement that "many corporations are now global, but governments are national, and thus many corporations are out of the jurisdiction of any governing body" is just false. In fact, the reverse is true - global corporations such as Microsoft and GE are in the jurisdiction of virtually *every* government body, many of whom choose to interfere in their business to the detriment of citizens elsewhere in the world. For example, look at the GE/Honeywell merger, approved by the US government but rejected by the EU, thus the two firms did not merge.

Tim Keller

Pretty much everywhere I look, people are seeing the same problem. Democracy is failing, corporations are accumulating power & abusing it, natural resources are being depleted to the point of exhaustion.

My solution is to bootstrap ourselves into finding an optimal, workable solution by creating a meta-solution framework.

When Shannon & Turing set out to create the first computers, they first mastered the math that would have to be used by them (Information Theory). We have to do the same. The solution to our problems will come from learning & applying the mathematical rules of self-organization, network theory & reputation. I've taken a small step towards that, starting a collection of all relevant papers in those fields as they're published. The next step will be to build a community of people to study them & apply their knowledge to practical applications & experiments - an Open Source Manhatten Project if you will, geared towards Self-Organization. Out of that I believe we stand the best chance of finding the answer we're looking for.

Tim

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